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January 12, 2009

Comments

Julian Fagandini

Dear Laurie,

I read your 12 January blog about business innovation with great interest. I wholeheartedly support your contention about the importance of maintaining, and indeed increasing, levels of innovation now. Beyond that, I suggest that there is a critical need for companies that want to be successful coming out of the current downturn to ensure that they deliver on one specific fundamental type of innovation during it.

We live in “unprecedented times” – or so everyone keeps telling us. Whether the hyperbolae are true or not, there is no doubt that we are still near the beginning of a journey through a period of exceptional turbulence in the commercial and economic environment affecting most, if not all, industries, both manufacturing and services. So much is incontrovertible – a ‘pestonism’ perhaps.

When the natural environment has gone through periods of major structural, sometimes discontinuous, change, it has been an opportunity for the evolutionary forces underpinning natural selection to produce accelerated “innovation” in terms of species adaptation and improved fitness for purpose within a changing world. Of course, “accelerated” in this context still means occurring over geologically lengthy periods of time.

What I would propose is that the business world has something to learn by analogy with the natural world here, albeit realised at a different pace and with the involvement of active creators. (Which seems rather appropriate on or about the 200th anniversary of the birth of Charles Darwin.)

In many industries, by no means least our own media and publishing sector, revenues that will depart the scene in the downturn will eventually rebound and return but they will do so significantly asymmetrically. That is, in the case of media for example, they will not simply return to the same formats in the same proportions and based on the same content and revenue models where they previously resided. Generational change will produce structurally different usage patterns. Technology enablers will take root in more fertile ground. When customers, whether end users, advertisers or whoever, come back, they will take a long hard look at their options as they make their new purchasing decisions. Trends that have been seeping through the industry for years are going to be amplified into stepwise disruptions.

What is needed is the business equivalent of species adaptation and natural selection, accelerated to the pace of the commercial world, and actively directed and managed by forward-thinking companies. I would call this process “adaptive innovation”. “Adaptive” because the successful players will need to have a seriously different shape to fit the new requirements. “Innovation” because it is about an active combination of scenario building and organisational reshaping.

In particular, the new media propositions that have been bolted on and retrofitted to existing media operations, particularly in the consumer media, will need to emerge from the downturn fully and truly integrated into a redesigned-for-purpose seamless brand-driven media business model. This is about more than just re-engineering; this is about the opportunity for re-formation. Of course, there are opportunities that must be taken for cutting costs, gaining efficiencies and rationalising operations. But the truly successful companies will emerge from the downturn not just as leaner versions of what they were before. They will emerge as radically reshaped entities, carrying their traditional strengths within their newly designed structures. They will emerge fitter: fitter for purpose, fitter to compete, fitter to win.

Just to illustrate this thesis with two disparate examples of media businesses with major challenges, I would cite ITV and the regional newspapers.

I don’t think that anyone would disagree that ITV has no sustainable business model as a free-to-air, advertising-funded terrestrial television channel alone, or even as a bouquet of such channels. Of course, there is considerable retained, but reducing, commercial strength and influence there, but it is not a standalone proposition anymore. Yet, ITV’s online offerings still typically seem to me to be rather disconnected from the television core. I can allow a few more promising examples, particularly in shows like “I’m a Celebrity…” where there is a natural place for viewer interaction and some advantage is taken of it. But, in the main, I would say that television and online are still not tightly bound to each other either editorially or commercially and do not make anywhere near the most of building upon and supporting each other. We can see some glimpse of the possibilities in the reams of additional material created by the studios to add value to all genres of filmed entertainment, first as DVD extras to underpin higher-priced and/or reissued “special editions”, more recently as content which is highly integrated with the movies themselves available alongside real-time viewing in the Blu-ray format. To retain and regain viewers, I would contend that television in general and ITV in particular needs to reinvent itself to extract value from similar additional material created and marketed alongside core programming as one holistic enterprise.

Meanwhile, in the regional newspaper industry, I find there is still far too entrenched a belief deep within the publishers that there is such a thing as a regional newspaper industry going forward. There is certainly going to be a regional news, information and entertainment industry in the future, and the regional newspaper businesses of today still have tremendous opportunities to be the central players in that industry, but they need truly to transform themselves in order to do so. The traditional classified revenue streams of jobs, motors and property have been disaggregated from editorial content and display advertising to such an extent that I would suggest they will never return to regional newspapers after the current downturn in sufficient quantities to create profitable businesses even after costs have been cut. Regional newspapers need to play to their true strengths: their local links, their local brands and their local credibility. There are national players, specifically the major offline and online business directories of Yell and Thomson Local, whose true local proposition is poor in comparison and whose lunch they should be eating.

Kind regards.

Julian Fagandini

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